The Social Contract: The Last Round Of A 12 Round Fight

Boxing fans were recently treated to the final chapter of the trilogy of heavyweight championship fights between Tyson Fury vs Deontay Wilder in Las Vegas a couple of weeks ago. Wilder finally succumbed after hanging in for 3 fights & well over 30 punishing rounds. The thread that kept him fighting finally broke.

There’s a very delicate, thread like connection between a population with its fellow citizens and its government. It doesn’t take much to create powerful community actions for good but woe betide any politician who forgets that same thread is even more vulnerable to being snapped and a knockout occurring!

And that is the very place that I wager the UK finds itself now, here in the Autumn of 2021.  Some 7 years after the Union of the United Kingdom was challenged with a very close independence vote by the Scottish people & 5 years after the vote for Brexit, the country is riven with disagreements, debt & dissatisfaction.

At the precise time when this small island in the north Atlantic needed a plan to redefine its place in the world & a brand for the population to get behind, instead citizens and government together have unwittingly conspired to consign the UK to unravelling at a rate of knots.  

However, rather than unpack the common refrains of Brexit & Covid, I want to focus on another aspect of the social contract that has been guillotined, notably ‘value for money’ for taxpayers…or more accurately certain taxpayers.  

Progressively over the last 40 years, UK income taxes have been cut and indirect taxes increased for the average family. Ostensibly taxing consumption rather than just income makes sense.

However, in an effort to win and keep the votes of low and middle earners (those families earning less than £150k per annum) taxes for those groups have been cut so far that public services have suffered from multi-year cuts in real terms & only the most insular British family still believes that their health, education & civil services offer quality akin to that available throughout most of the G20.

To place this into perspective, a family earning £100k/$140k per year with 2 adults working are only paying some £20-23k in direct taxation. Given that it costs £6k to educate just 1 child in state provided school per annum it’s easy to see that by the time you add in health, police, fire, council, social, refuse etc for the average family of 4… the contribution in tax doesn’t even come close to the services consumed by these tax paying groups.

Various studies show that the hypothetical family earning £100k PA is actually only paying for 25% of the public services that they use & that’s after adding in the indirect consumption tax received. Whilst it’s human nature to whinge about taxation, it’s the national sport for most of us! Most low to middle income families know deep down that they get a great deal – barely paying anything for what they consume.

Now let’s layer on usage of public services. Higher earners in Britain tend to elect out of the most expensive services: public health & education systems judging them to be far from fit for purpose. British education & healthcare is of second world quality at best.

Historically, therefore higher income families paid twice for many services; once through direct taxation and again by paying from disposable income. By the way, I’m astonished by how few people actually know that there is no offset in the UK tax system to prevent this double payment.

Let’s bookend this part of the blog by reminding readers that the top 1% earners in the UK population pay 30% of all taxation collected. Put another way £3 of every £10 collected in tax is paid by just 300,000 people in the UK.

Perhaps you’ll agree that this statistic rather undermines the anthem that the rich and their companies get away with fiscal murder…

You may be thinking that is an utterly unsustainable business model! You’d be right…Of course the system has been partially bailed out for decades by high earners and corporations who pay vastly inflated taxes to prop up the tens of millions who pay almost nothing.

The social contract that underpins this is tenuous and shaky and relies upon a direction of travel that makes higher earners see a prosperous future for themselves and their children & delivers some perks and privileges.

Once the future becomes as blurred as it now is, the desire for most higher earners to keep footing the bill wanes very quickly indeed. Now add in that almost every small to medium sized business owner in the UK was subject to the same ‘Russian’ style authoritarianism during the covid virus phase as the wage slave hooked on the heroin of the monthly salary.

But whilst the former was furloughed on full pay the latter received no help at all from the central government. This helps to explain the deep rooted frustration and anger that entrepreneurs across the land feel. But it gets worse.

There is a controversial but pretty accurate dividing line that British people don’t like to discuss but exists as clearly as the sun rises each day. People who were going to be paid regardless tended to support lockdown as a policy and those whose income stopped or business was destroyed took the diametrically opposite view.

Put another way, those receiving payroll tended to be hoodwinked that lockdowns could work because it didn’t really impact their financial lives & those who created the business that led to the payroll saw the madness of closing a country down for over a year.

The net result was a policy which was and is now visible as fundamentally flawed; that killed more people than it ever saved and bankrupted the country. And who’s going to pay? Yes, you guessed it the higher earners and corporations – the very people who tended to see the giant flaws in the policy in the first place.

The corporations that keep this country afloat are now being attacked as not paying enough tax!

You couldn’t make it up, low earners calling radio shows to complain about the amount of tax that Amazon pay…This is the smokescreen that government hides behind because it isn’t brave enough to face it’s population, the whole population, and explain that every single worker earning under £100k needs to pay a lot more tax if they wish to keep using public services at the rate they do.

Of course that conversation won’t happen because conviction politics is a thing of the past – it’s all about votes. But it gets worse.

COP26 is laudable. Fullstop. But the policies in place to execute it are fatally flawed and will only serve to add fuel to the fire described above. One of the largest consumption based taxes in the UK is fuel duty (50% of the pump price for petrol/diesel) doesn’t go to Shell, Esso or the others but to the UK government!

So, if the conversion of vehicle stock on the roads to EV’s remains a central plank of UK government policy then most of the fuel duty disappears leaving yet another whopping black hole in the country’s bank account. And who do you think will be told to cover that hole?? Average joe’s plugging their new EV cars into the wall – no!      

The UK is post growth & post opportunity. The social contract that encourages high earners to pay more than low earners to keep the country going is broken, irreparably. The smartest, most mobile and risk tolerant citizens are being treated terribly & subject to a brand of government most of us thought had ended in 1979 or in the Eastern Block in the early 1990’s.

They also now know that their fellow citizens won’t bail out the situation through a sensible voting strategy. The awful truth is that the majority of citizens just voted for or noisily supported the 3 worst actions in the UK in the last 100 years; Brexit, the 2019 Tory party victory & lockdown.

And so, human nature is to go where you are treated best not stay where you are treated worst.

If you’re wondering what happens next, I recommend diving straight into the next blog entitled Fight or Flight…

If you found this article interesting, frustrating or thought provoking,  please comment, like & subscribe.

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